HKMA’s Bank Rule Boosts Shareholder Oversight, UOB Kay Hian Says

The Hong Kong Monetary Authority’s tightening of the city’s banking laws will improve its oversight of shareholders in domestic lenders, according to UOB Kay Hian (Hong Kong) Ltd.

A non-financial services company or a foreign institution owning more than 50 percent of a bank’s shares will need to set up a Hong Kong-incorporated holding company to hold the stock, according to amendments to the banking ordinance published on Oct. 4. The holding company may be asked to meet conditions on capital adequacy, risk management and the suitability of directors and senior management, according to the ordinance.

“The amendment is a risk-management measure making sure that buyers of Hong Kong banks have the relevant experience and won’t add risks to the city’s banking sector,” Edmond Law, an analyst at UOB Kay Hian, said by phone today. “This is not to discourage any potential transactions to proceed further.”

The rule comes into effect at a time of mounting speculation over takeovers of Hong Kong’s lenders. The city’s role as an international center for trading of China’s currency is attracting Chinese institutions seeking to expand abroad and foreign buyers eyeing the mainland market.

Requiring a majority shareholder to set up a local financial holding company will enable the HKMA to exercise “consolidated supervision” in accordance with international standards, the regulator said in an e-mailed reply to questions from Bloomberg News today.

China Merchants Bank Co. paid $4.7 billion in 2009 for Wing Lung Bank Ltd. Owners of Wing Hang Bank Ltd., including members of Chairman Patrick Fung’s family and related trusts, were in preliminary talks for a sale that would trigger a mandatory buyout offer, the bank said in a Sept. 16 statement.

Stock Rally

Chong Hing Bank Ltd., the smallest of Hong Kong’s family-run banks, is in talks with “independent third parties” including Yue Xiu Group, and the timing of any transaction is uncertain, the lender said in a separate statement the same day. Yue Xiu is the trading arm of the Guangzhou city government.

Chong Hing’s share price has doubled this year, while Wing Hang climbed 41 percent. The benchmark Hang Seng Index has risen 1.4 percent in that time.

UOB Kay Hian is a brokerage unit of Singapore-based United Overseas Bank Ltd.

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